J'EDERAL
vol. 4:2.
Kansas Oi!:y, etc., Ry. C{). v. Interstate Lumber Co., 37 Fed. Rep. 3, (by Judge BREWER,) and Burck. v.. Taylor, 39 Fed. Rep. 581, (by Judge MAXEY.) The motion to re{rrand 'is denied. See, also, First Nat. Bank v. Merchanta' Bank, 37 Fed. Rep. 657.
BARHORST
et
V·. ARMSTRONGet,al.
(Circuit CoUrt, S. D. Ohio, W. D. March 29, 1890.)
1.
EQUITT-UA:RSHALING AsSETS-JUDGlIIENT.
2. INJUNOTION-NEGLECT OF A T T O R N E Y . '
The fact that an attorney engaged to defend a suit neglects to do so is no ground for enjoining the enforcement of the judgment j the only remedY,of the judgmllnt debtor, if he was, damaged,. is against the -attorney. " , " , ,
", ' , ' Billfb.'1i an injunction'filed by Harmon Barhorst and Mary Barhorst, his wife, against' David ArrI18trong, receiver of the Fidelity Natiohal Bank oNilineinnati, Moses F. Brown, L.F. Brown, and Alfred Hill. O. H. Blackburn, for complainants. 'Hill ;&: Stritker and Paxton Warrington-, for defendantB. , ' SAGE, J. 'This suit is upon an ancillary bill filed by complai,9ants to restrain proceedings upon a judgment for 8500, recovered in this court by Davfd Apnstrong, recejverof the Fidelity Na their promissory nqtedated June 9, 1887, and. payable 10 m()ilther after date to the order otMoses F. Biown. set forth that they fully paid said note before its Illattirity to Moses F.Brown; and with intent to defraud, failed to detransferred it to Arnratrong, liver it t6thern'!1pon its payment, as:receiverof the 1J'idelityNatil;mal sMunty,; that Armstrong, with'knowledge that the note had been paid before lilaturity" after it had become due entered into an agreement withL.F'. Brown, who had notice of the payment of the note, whereby he wfls toassume aIidpay ot Moses F. Brown the Fidelity National Bank16i-'thEl the ribte to and bthllJ! 'notes were held by Armstrong as collateralj that it was further agreed that said "
l
to
'BARIIORST 11. ARMBTMNG.
receiver was to 'recover judgment against complainants on said and assign the· sa.me to ,L. F. Brown, and that the suit was accordingly brought in this court by the receiver against the complainants and MosE's 'F. Brown; and that the complainants had a compiete defense, of which 'the receiver and said Brown had due notice. The complainants further aver that they employed Edwin J. Franks,an attorney at' law, to present their defense, and relied and depended upon him to represent them' in the case; that they had no knowledge that they werehl' default, orthat the judgment was rendered against them, until after the term at which it was rendered, and after their property had been seiied in execution; that after the renditibn of the judgment,' and the issuance of the execution thereon, to-wit, about ,the 8th day of October, 1888, Armstrongtl.ssigned said judgment to Alfred Hill as attorney forL. F. Brown; that said L. F.Brown isa brother of said Moses Brown, and in his action herein was in concert with said Moses Brown with intent to cheat and defraud the eomplainants, and that said Alfred Hill,attorney, had flIll and complete notice of the equities of complainants in the bill set forth. The complainants further aver that, unless prevented, said Hill wilrsell their property seized in execution as aJoresaid, which is all the property owned by them, and if thus taken will leave them destitute; also, that said L. F. Brown and Moses'F. Brown are insolvent and pecuniarily irresponsible. Wherefore complainants pray that the defendants be enjoiiled from further proceedings upon said judgment, and from selling said property; that the judgment be declared and held to be null and void as to complainants, and their property be released from said execution. The answer of the defendants denies payment of the $500 note, or notice thereof toL. F. Brown or Alfred Hill, or that the complainants had il. defense to the action brought thereupon by Armstrong, or that they were acting with Moses F. Brown in any attempt to cheat or defraud complainants. It further avers that the complainants were notified by defendants, before said note was due, that the same was held by David Armstrong, receiver; and that ·before the maturity of said note L. F. Brown agreed with said receiver to purchase the collateral and principal notes held by him as receiver, and pay the indebtedness of Moses F. Brown upon the principal notes, said Armstrong agreeing to recover judgment upon said $500 note, and assign said judgment to L. F. Brown. They further answer that on the 8th day of October, 1888, L. F. Brown purchased the judgment upon said $500 note from Armstrong, receiver, and they deny that L. F. Brown is insolveut, and aver that he is reasonably worth the sum of 830,000, over and above his debts and liabilities. Upon the hearing it appeared from tpe record that, when Armstrong assumed the duties of receiver of the Fidelity National Bank, Moses F. Brown was indebted to the bank upon his discounted notes in thesmu of $3,000; that in September, 1887, in response to the demand of the receiver, Moses F. Brown hypothecated as additional security for the payrnentof his indebtedness to the bank, the $500 note made to him-by the complainants, with other promissory notes. From tinie tdtiine,by
FEDERAL REPORTER,
vol. 42.
notes and by payment on the original discounted noteB,.the indebtedness was reducedto about $1,400, in April, 1888; at whiqh time Hill, as attorney for L. F. Brown, agreed with Armstrong topurellase all the discounted notes and co11aterals, and pay the indebtedness of $1,400, ArQistrong agreeing, in consideration therefor, to put the Barhorst note for $500 into judgment, and assign the jndgment to Hill as attorney for L.. F .. Brown. This agreement was carried into effect. The judgment was rendered upon the note in August, 1888, which was in the April term of the court. On the 8th day of October, 1888, Alfred Hill, for L. F. Brown, paid to Armstrong the sum of $987, the balance then due from Moses F. Brown to .the Fidelity National Bank, including t4eoosts in the action upon the Barhorst note, and on the same day assigned said judgment to Alfred Hill, as attorney for L. F. the 13roWn.· further a.ppeared that while the $500 note was in the hands :of Armstrong, as .collateral security, it was paid by Barhorst and wife to Moses,F.Brown, as is evidenced by his receipts. When the last installment of the payment was made, Mrs. Barhorst, who conducted the transaetione,for herself and husband, demanded the note, and was answered by Moses F. Brown that he had forgotten it, and left it in the city, hut would bring it out to her the next da.y, whereupon she paid him the balanCf:lpue. l'he next day he informed her that the note was in the hands ·of Armstrong as collateral, which was the first intimation which .she ol"her husband had of that fact. Shortly aft.erwards Barhorst and wife learned that another note, purporting to be signed bythem, for the sum of $207 .50, was in the hands of Armstrong, also as collateral for the notes upon. which Brown was indebted. That note was forged. Brown was qhll,rgedwith its forgery ltnd arrested. The forged note was indorsed by Mf}8es F ·.Brown and by L. F. Brown, and was turned over to Hill as attorney for .L. F. Brown, by Armstrong, in pursuance of the arrangementbetween t4em. Among the co11aterals held by Armstrong was also 'a. note fo):' $750, made byL.. F. Brown to. the order of MQses F. Brown, and indorBE1d by him. This note bore interest, and at the time of the payment by L. F. Brown to Armstrqng, as·above set forth, about month\".interest,at 6 per cen,t., had accrued upon it. With refer'fAce to theel;nployment of Franks as· attorney for Barhorst ,and defend the action upon their $500 note, .the evidence is not ,satisfactory. The complainants themselves did not testify positively to such enwloy;ment. But it does appeal1,t!;lat Franks looked into the case, and eame tq the conclusion that there WltS no defense, and therefore did not undertake to make any answer. I.t is clear that Franks was right in his view of the case. There was no defense to the action. It is true that, 1;he amount due upon the note had been paid to Moses F. Brown. That was a full acquittance as between Barhorst and wife and Moses ;F. Brown, but it did not affect the rights of Armstrong, to whom the note had. been transferred, and, as Barhorst and wife paid the note .witho\lthaving it delivered up to them, they did so .at the risk of having,to pay it over again to Armstrong. Whether or not Franks attempted a defflDif!e,to the action upon the note is wholly immaterial. The
BARHORST tl. ARMSTRONG.
ment upon the note could not have been prevented by any defense. Barhorst and wife might, by bill in equity, have compelled Armstrong to exhaust all the other collaterals he held before resorting to the $500 note, which they had in good faith paid to Moses F. Brown. But, even if the failure of Franks to make any defense had deprived Barhorst and wife of the opportunity to prevent a judgment against them, that fact would not avail them at law or in equity against Armstrong. Their only remedy would have been against Franks, if. he was in fact their attorney, for damages. If they did not employ him, and by reason of their own neglect allowed judgment to be taken by default, they would have to stlffer the consequences. The averments that Armstrong had notice of the payment of the $500 note are negatived by the testimony. That note was transferred to him as collateral before its maturity, and before the first installment of the payment was made to Moses F. Brown, and he had no notice, at any time before the note was reduced to judgment, of its payment. The charges of the bill that L. F. Brown was a party to any fraud upon Barhorst aud wife, or that he had knowledge or notice of the payment of the $500 note to Moses F. Brown, or that his attorney, Hill, had any such notice, are wholly unsustained by the evidence in the case. On the contrary, it appears that L. F. Brown and his brother, Moses F. Brown had quarreled, and were not on speaking terms at the time of the purchase and transfer of the judgment and notes from Armstrong. The charges of fraud against L. F. Brown and Hill, and of notice, may therefore be dismissed without further consideration. This cause was submitted without argument. It seemed to be regarded by counsel as depending upon proof of notice and of fraud, as above referred to. But let us examine it a little more closely. That the collection of the $500 note by Moses F. Brown from Barhorst and wife was a gross fraud is not open to doubt. His statement when he received the last payII,lent, and when the note was called for, that he had forgotten it, and left it in the city, was a false pretense as to an existing fact, which made the obtaining of that payment not only fraudulent, but criminal, and punishable under the statutes of Ohio by imprisonment in the penitentiary. As has been already stated, the payment of the note created an equity in favor of Barhorst and wife, which entitled them to require Armstrong to resort first to the other collaterals which he held. That equity was not destroyed by the reduction of the note to judgment. Armstrong's interest in the note was only to secure the principal notes. He had the right to take judgment upon the $500 note, but if the bal. ance due on the principal note was paid without its being necessary to apply the judgment upon the $500 note, in whole or in part, the judgment would inure to the benefit of Moses F. Brown,for whom Armstrong would hold it in trust, and as against Moses F. Brown the equity of. Barhorst and wife was complete. Now, what was the transaction, so far as L. F. Brown was concerned? His contention is that he purchased the claim of the bank against Moses F. Brown. But can there be any doubt that the purchase was,subject
ll'BDEBALREPOR'llER,
vol; 42.
tonallLequities that could have been asserted against' the receiver? Mlthe,paperwas past due. L. F. Brown knew that the collateral notes 'went he can assert no claim which could not have been 88stlrted by Armstrong; Let us goa step further. L. F.Brownand his lboother,Moses KBrown, wereindorsers of the forged note for which was among the collaterals, and they thereby guarantied the genuineness of the forged signatures. He was therefore indebted upon that note. ,His own, note for $750" with 15 months l interest, was also among tDe'collaterals. His entire plliyment to Armstrong' was $987, bein§.'lessthanthe amount due by him upon the two notes last above refeneclrW. ' What he calls a purchase was 'therefore secured by the paymentofless than the alllount due upon <lollaterals held by Armstrong on have been !which ,he was personally liable, and which Armstrong compelled by Barhorst and wife to exhaust before resorting to the $500 notewhicb they had paid to Moses F. Brown. It has the look of a thrifty expedientto payoff his own indebtedness at less than its f!,lce, and to get in addition a judgment for $500 against Barhorst and wife, secured by a levy upon all their property, and they the intended victims of his own brotherls most outrageous fraud, proven by conclusive and uncontradictedevide:il:Ce. If it was a purchase it was subject to equities. If the transaction be treated as nothing more'than a payment, in part, of his .own obligations which were held by Armstrong as collateral, 'the transfer of the judgment placed him in no better position than Armstrong ocoupied. In either view, the equity of the complainants against his claim upon the judgment is strong enough to extinguish it. Conceding lthat L. F. Brown was free from fraud in the transaction, it results, nev'ertheless, that he has taken nothing against Barhorst and wife by his purchase of the judgment against them, and that, so far as they are concemed, the judgment must be canceled. The decree will find the facts in accordance with this opinion, and will direct the cancellation of the judgment as againstBll.rhorst and wife, leaving it to stand against Moses F. Brown. L. F. Brown will be required to pay all the costs which have been incurred upon that judgmentsince its rendition, as well as the costs Of this proceeding. .
j, '
FARMERS' LoAN
&
TRUST CO. BIPPUS
v. v.
CHlCAGO SA!lIE·
& A. Ry. Co. et ale
.(Oirooit 000'11, D. indiana. December 24, 1889.) &t.Ii.JiOAD
:M:oRTGAGE-CAR.TRusT LEA.SE:....PRIOBITmS. An intervenor in proceedings to foreclose a 'railroad mortga.ge was the owner of ,cars ia hands of the company under a lease which reserved to it a right to reciaim its property upon default in payment of rent. Upon the appointment of a receiver, the company being then in defaulthit petiti.oned the court, and demanded the receiver be returned wit in 30 days. They were not returned, 'but were continuouslY used by the receiver, without objection of the bondholders